What to know about Trump retirement accounts
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Illustration: Lazaro Gamio/Axios. Photo: Getty Images.
President Trump's proposal for retirement accounts, announced earlier this week, has some real policy chops underneath it.
Why it matters: While still vague, the plan arrives at a moment when policy wonks are rethinking how the U.S. handles retirement, one of the most feared chapters in a working person's life.
Zoom in: The basic idea is to enroll lower-income Americans, who don't have 401(k)s, into similar kinds of plans. They would be "portable" — so you hold on to one — no matter where you work or if you work at all.
- It appears to be modeled on the Thrift Savings Plan, the largest defined-contribution pension plan in the world used by around 6 million federal employees, including members of Congress.
How it works: Trump can do some of this without legislation.
- Existing law passed under former President Biden already allows for the creation of new retirement accounts and authorizes matching funds for very low paid workers, those earning $20,500 or less per year.
- But Trump will need Congress to fully realize the plan's potential, says John Lettieri, CEO of the centrist Economic Innovation Group, which floated the idea in 2021 and has been talking with the White House.
- Auto-enrollment, a key way to ensure strong uptake of these accounts, requires legislation.
Friction point: In the State of the Union this week, Trump emphasized that retirement accounts were not a plan to cut other benefits: "We will always protect Social Security, Medicare, Medicaid."
- But there is a concern that these accounts would make it harder for lower-income workers to access necessary Medicaid long-term care supports after they retire. They may have too much in assets to qualify, yet not enough to obviate the need for help.
- "The problem facing poor seniors isn't that they didn't save enough for retirement," Andrew Biggs, a senior fellow at the conservative American Enterprise Institute and a former Social Security official, wrote this week. "It's that they've been poor all their lives."
Zoom out: Still, these plans are voluntary and would likely be welcome news for the millions of Americans without access to a workplace retirement plan, much less an employer match.
By the numbers: The vast majority of high and middle earners have access to employer-based retirement accounts, compared with fewer than 20% of the bottom earners, according to an analysis by the Economic Innovation Group.
- Social Security, which is beloved by Americans and serves as an anti-poverty measure, also has an inequality problem.
- It is similarly regressive, with just 7% of benefits going to the poorest 20%. The richest receive 29%, as two retirement experts noted recently.
- Many of the higher-income workers with bulging 401(k)s also have generous monthly Social Security checks coming to them.
The big picture: There's a growing push from conservatives and some employers to make benefits, like sick days, "portable."
- It allows companies to offer something to a rising class of gig workers without going through the expense of paying for the kinds of benefits offered to full-time workers.
- There are also some growing rumblings about how Social Security could actually use some improvement. It's also approaching a funding cliff.
- Trump himself has suggested the U.S. take a page from the Australian system which, experts say, does a better job on the inequality front.
The bottom line: Politicians are usually loath to monkey with retirement, but something's in the air now.
